If you have opinions about the subject matter of posts on this blog please share them. Do you have a story about how the system affects you at work school or home, or just in general? This is a place to share it.

Tuesday, June 27, 2017

The Italian job.

The Italian government is putting up €17bn in public money (from
the ‘magic money tree’) to bail out two Venetian banks. The banks will
not be nationalised, but instead handed over to Intesa Sanpaolo Spa,
Italy’s biggest bank, for the token sum of one euro!

Intesa will
guarantee the cash deposits of the Venetian banks, but it will sack
several thousand bank employees, while getting 900 new branches and
billions in financial guarantees from the government. Intesa will take
over all the performing loans from the Venetian banks, while the state
gets to keep all the bad debts that it must either write off or try to
collect over time.

So yet again, the reckless activities of some banks and the
stagnation of the economy that made many companies unable to pay their
debts are to be ‘resolved’ by the state stumping up the cash. The
bailout is equivalent to 1% of Italy’s GDP, adding yet more to the size
of Italy’s already massive public sector debt of 135% of GDP. Intesa
gets some cleaned-up banks for just one euro, just as JP Morgan got the
banking network of Bear Stearns in the global financial crash for one
dollar – all paid for by taxes or government borrowing. The state and
the people get nothing for their €17bn.

What is even more ironic is that the Italian deal breaks the very
banking rules set up by the EU governments after the global financial
crash to avoid bank investors (bondholders) being bailed out at taxpayer
expense. Under the EU’s Bank Recovery and Resolution Directive (BRRD),
such bailouts should first be funded by bank bondholders, including
so-called senior bonds, and only after that, in the extreme, by EU
funds. But the EU’s Single Resolution Board accepted, under pressure
from the Italian government, that there was no real ‘banking crisis’
that required EU intervention and so it could be dealt with by Italy
alone.

The deal has been frowned upon by Germany, as it bends the new
banking rules to the point of making them irrelevant – but then the head
of the ECB, Mario Draghi, is an Italian and former head of Italy’s
central bank. For the Germans, it is a signal that further integration
financially in the Euro area is impossible if nation states break the
rules flagrantly.

Thus we have another bank bailout, nine years since the global
financial crash that nationalizes the losses caused by the bankers and
privatizes gains for those bankers remaining: exactly what EU banking union rules were meant to stop.
Thousands of bank employees will be out of work; but bank investors
and bondholders are laughing all the way to the new bank. The state
racks up more debt and thus increases the pressure to introduce more
austerity to service the debt. And other bankers know that, if they
make a mess of things, they can escape with a state bailout and carry on
as before.There
is no idea in this deal that the people through the state could take
these banks (and the other major banks) into public ownership and
make banking a public service for households and small businesses and
not be used as vehicles for reckless speculation, greed and corruption.
On the contrary, this Italian job is business as usual.

1 comment:

Yes, good article.I'd like to add that the 5*Movement is adamantly against this legalised ripoff and political sleight of hand, and is polling at 30%, (into the teeth of a media gale).Which is why they are delaying an electoral law, to delay elections and try to resell us Renzi as the chosen one.He is delusional and melting what little wings he has left.